In the last few decades, the flexible exchange rate has become the predominating policy mplemented by most countries in the World, except only a few countries who can keep their exchange rates fixed. The predominating position can be attributed mainly to Milton Friedman’s strong support. What is less known, nonetheless, is a hidden premise that the flexible exchange rate policy will help fiscal policy in the sense that only governments who do not manage the fiscal policy properly will get ‘punished’ by exchange rate decreases. But as the US-Japan experience showed, this widely-held assumption is often not realistic. The same experience has been observed in other countries too, i.e. that financial liberalization including flexible exchange rate often became precursor of financial instability.